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Global Sustainable Biomass Fund

DBM 01014

Capturing methane emissions from palm oil mill effluent

for fossil fuel replacement in power generation

in Palembang, Indonesia

Public Final Report Updated version - September 2013

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Context and reasons to start the project

Context and justification for the project

Since 1997, Zebra is active in the Indonesian palm oil market with engineering, technical advice

and training. Special measurement equipment for the palm oil industry has been developed and

installed in a large number of mills, refineries and bulking stations in Sumatra. The need and scope

for innovation to raise efficiency and environmental sustainability of the palm oil sector is huge but

only a few companies are active in this field. Zebra, in cooperation with international and local

partners, has experience, knowhow and technological solutions that can significantly raise the

performance of the palm oil industry in South-East Asia, while contributing to substantial reduction

of carbon emissions.

In 2003, Zebra was invited by government of South Sumatra to establish a mill to process oil palm

fruit produced by smallholders in the Palembang region, where such facilities were lacking. The

smallholders are recent settlers who were provided with two hectares of oil palm plantation per

household following their transmigration to this area. Zebra designed a project that would not only

fulfil this local need but also to establish a pilot and demonstration project for efficient processing

of palm oil, serving as a reference project for Zebra’s business relations and other organisations.

The plant, which was commissioned in August 2006 with a modest initial capacity of 7.5 tons per

hour, is modular and thus can be easily scaled up. The plant requires 75% less energy than

conventional palm oil mills. The smallholders have been organised in three cooperatives that are

planned to gradually take over ownership of the plant from PT PalmPro, a 100% sister company of

Zebra. The project, which was co-financed by PSOM, ended in 2007. The University of Sriwijaya

has undertaken an environmental impact study (Amdal) at the outset of the project and continues

to be involved in monitoring of efficiency and environmental parameters.

Parallel to the PalmPro project, Zebra has been developing expertise and appropriate technology in

the field of capturing methane from palm oil production and the CDM certification of such projects

in cooperation with strategic partners. At the core of the technology is the state-of-the-art

‘bioreactor’ where POME is converted into useful biogas by creating optimal conditions to achieve

90%+ conversion efficiency, leaving a very clean effluent and generating maximum amounts of

biogas. This reactor is sealed using a specially developed cover and the gas is channelled to a

burning installation. For generation of carbon credits, the flaring of the methane gas is sufficient

and this is indeed what most CDM projects are all about. Unsatisfied about the flaring of biogas,

however, Zebra has developed and tested a biological gas scrubbing system to clean biogas from

harmful sulphuric acid and a system to mix the clean gas into a standard diesel generator. With

this system, up to 70% of diesel consumption can be replaced by biogas, leading not only to

substantial costs savings but also further carbon reductions by fossil fuel replacement in power

generation. At project initiation, the implementation and CDM certification of this total technology

package for the palm oil industry were new to Indonesia.

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Zebra was keen to implement this approach at the PalmPro factory and obtain CDM status

accordingly, making it the first project of its kind in Indonesia and therefore even more interesting

as a reference project for the palm oil industry. In combination with the 75% energy savings in

palm oil processing compared to conventional mills, the PalmPro model could be the most energy-

efficient palm oil plant worldwide.

The proposed technology package with co-generation of electricity is most relevant to small, off-

grid mills – which applies to 50% of the industry. In Malaysia alone, Zebra has identified and

contacted more than 30 palm oil mills in this category that will be interested to adopt the

technology once demonstrated. Indonesia, lacking behind Malaysia in technological innovation, has

many palm oil mills that would benefit from adopting the same technology as proposed in this pilot

project. CDM certification, at the time of project initiation, was considered to be a basis for

financing such projects on a sector-wide scale, benefitting both the producers and the buyers of

carbon credits. The cooperation with Dutch and Indonesian knowledge institutions ensures that the

learnings of the pilot project become available to industry and policymakers alike.

Target group

The immediate subject of the project is the PalmPro factory in Palembang, indirectly benefitting the

smallholders organised in three cooperatives that are the main suppliers of fruit and have been

planned to take over ownership of the plant when it was built. However, through the realisation of

this reference project, Zebra targets the entire palm oil industry in Indonesia and Malaysia (and

possibly other countries to follow on), notably relatively small mills in off-grid locations.

Location

The project concerns PT PalmPro in Inderlaya, some 60 km from the town of Palembang, South

Sumatra, Indonesia, which sources palm oil fruit from smallholders, who are located up to 200 km

from the mill.

Project partners

Partners to this project are Zebra Special Products BV and PT PalmPro. Subcontractors include:

- Zebra Industrial Projects BV

- VO Consultancy

- Landbouw-Economisch Instituut BV (LEI)

- University of Sriwijaya

- Advance Consulting BV

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2. Objectives of the project

The aim of the project was to contribute to sustainable production of palm oil by setting up a

reference project in Indonesia, (a) demonstrating innovative technology for conversion of biomass

waste into biogas for power generation, (b) building up empirical knowledge, (c) increasing local

capacity and transferring of knowhow to local counterparts and (d) addressing sustainability

certification issues.

On an overall level, the following results were defined:

1. CDM Certification

2. Technology for methane capturing and conversion into electricity implemented

3. Sustainability effects assessed and project results disseminated

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3. Activities undertaken in the project

During the project implementation period (1 October 2009 – 30 June 2013) the following project

activities have been carried out:

1. CDM certification

At the start of the project, Zebra assigned VO Consultancy to design the necessary Project Design

Document (PDD). To that end, Zebra and VO Consultancy have organised stakeholder meetings in

Indonesia and jointly prepared the technical documentation needed for developing the PDD. The

development of the PDD took longer than expected due to the fact that the PDD designer needed

to verify the technical specs with the equipment suppliers. On top of that, the earlier chosen

baseline definition changed. The initial chosen definition included a “Greenfield” approach taking

data from similar projects as reference. The alternative approach (based on “historical” data) at

that time was not preferred as historical data initially was tagged as impossible to verify. However,

during the process it became clear that the Greenfield approach would entail a substantial

reduction on the amounts of CERs achieved. As the absolute number of CERs achieved in any case

would be limited (as PalmPro is a relative small pilot factory), in consultation with the PDD designer

it was decided to apply the historical data approach.

The process of coming to a conclusion by the Ministry of Environment - the DNA Jakarta - on the

HCA (Host Country Approval) request took considerable time. First of all, LEI, Zebra and NL Agency

decided to consider the EU-RED, RSPO and CDM regulatory within the monitoring schedule.

Subsequently, the PDD application needed to be adapted in terms of the monitoring approach. The

PDD had to be translated into Bahasa Indonesia and had to be presented through an Indonesian

Consultant which, as it concerned technical language, took much longer than expected. Next, the

PDD had to be translated into Bahasa Indonesia and to be presented through an Indonesian

Consultant. In February 2011, the PDD presentation was held at DNA, which positively received the

proposal. A next hearing was planned in April 2011 where technical reports about the existing mill

condition and some supporting documents regarding local permits had to be submitted. Instead of

the promised LOA, more doubts and questions were posed to the consultant. In order to sort these

out, the partners requested and were granted a second hearing in early June. Unfortunately, this

all led to the rejection of the approval request in June 2011. In the opinion of the DNA the

expected number of CERs to be generated was limited in relation with the total investment

required. New members of the board expressed their feeling that the project investment was not in

relation to the achieved 7,000 annual CERs. Zebra’s comment and reference to the feasibility

calculations that also reduction of fossil fuel and spin-off from this pilot project must be taken into

account were rejected as non-relevant. Based on the HC autonomy the PDD proposal was

eventually declared “non-sustainable” and Zebra were advised to restart the mill and apply for a

new project. In fact this meant that the DBM project could not be validated and registered as CDM

project at the UNFCCC.

Instead of chasing CDM validation and registration, after the HCA was not obtained, the project

partners filed a request with NL Agency to assess the possibility of reducing carbon dioxide

emissions under the Voluntary Emission Reduction (VER), Gold Standard. In the meantime, the

project would continue to implement the remaining activities. In short, these activities entail

implementation of proposed hardware structure through which methane gas is captured and

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utilised for energy purposes (result 2); and implementing a sustainability monitoring system with

LEI and UNSRI to assess the effects related to the Cramer Criteria (result 3).

For assessing the viability of having the project registered as a VER/Gold Standard activity, several

negotiations with German utility company RWE were undertaken. This company initially showed

interest in buying CERs, however lost interest in the end as the VER market price was perceived

too low. RWE withdrew from the process and other potential buyers remained uninterested.

Eventually there were no CER/VER buyers found. These negotiations and (lacking) results are in

line with the global recess of carbon trading in the years 2010-2013.

Parallel to the Methane Capture and Usage project, PalmPro has tried to get the supplying farmers

and it’s mill certified for RSPO compliance. Although these activities are not strictly part of the

Methane Project, it’s worth to know the lessons learned. In terms of RSPO certification, several

negotiations with Solidaridad, Neste Oil Ltd, St. Doen and Wilmar Edible Oils BV were held. The

idea was to verify and certify the oil palm smallholders against the RSPO sustainability criteria.

Each partner had an interest to take an active stake in the supply chain for certifying supplying

smallholders. Solidaridad and St. Doen both were interested to provide Technical Assistance, while

Wilmar was interested in the production and export (against reduced export tariffs) of palm oil

derivatives (by-products such as PFAD), to be further refined into biodiesel by Neste in Singapore.

Already in 2011, Neste and PalmPro drafted an agreement for a risk assessment study which

should clear the path to a supply agreement for green CPO. The final deal with Neste, however, did

not materialise due to a juridical complication in processing 3rd parties CPO (from PalmPro) into

biodiesel at the Wilmar refinery.

2. Technology implemented

Parallel to initiating the CDM/VER registration activities, the project partners were active in drawing

up the parameters and requirements related to the technical design and engineering activities of

the technology. The technology to be implemented included methane generation from POME ponds,

capturing of the biogas, scrubbing and mixing for co-generation of electricity. The technical

description of the technology was realised and shared with other stakeholders including FFB

suppliers at stakeholder meetings. Engineering plans and drawings were prepared. Subsequently,

quotations from different equipment suppliers were acquired, as well as quotations for

infrastructural works and geomembrane lining. The ‘Amdal’ (environmental impact assessment) for

PalmPro was updated by Zebra to include the bioreactor and power generation system. UNSRI was

contracted and the necessary (building) licenses were acquired.

Local contractors fabricated and installed the

bioreactor, de gas scrubber, pipelines, measurement

equipment and flare equipment. Commissioning was

done in January 2012. On top of that, Zebra BV

invested in almost doubling its processing capacity at

the mill to increase its production from 10,000 kg of

FFB per hour to 18,000 kg of FFB per hour. To that

end, the mill was extended with infrastructure and

machinery: the off-loading platform was extended, an

additional steriliser, thresher and boiler was installed;

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and the mill ensured that both presses operated in parallel to each other. Commissioning of the

new processing capacity was done in April 2013, after which the plant became fully operational.

3. Sustainability effects assessed and disseminated

At an early stage of the project, Zebra contracted social-economic research institute

LEI and Indonesian University UNSRI to set up a structure for sustainability monitoring and

assessment. LEI drafted a monitoring structure based on the Cramer Principles as defined by the

Testing Framework for Sustainable Biomass. As a next step, a baseline survey was prepared for

benchmarking the “without project” situation as a reference for assessment towards the end of the

project. Against this framework, LEI benchmarked the sustainability aspects of the project together

with the Indonesian University in Sriwijaya (UNSRI). On basis of data gathered, LEI prepared a

sustainability impact assessment report which evaluates the impact of the project against the

Cramer Criteria.

The partners presented their findings at different seminars, amongst others the Bio-based Economy

seminar in Jakarta in March 2011 and in April 2012. The final sustainability impact assessment

report, made available in May 2013, has been sent to numerous organisations, private sector

parties and media. Between 28 March and 3 April 2013 several stakeholders and interested parties

were invited by Zebra and PalmPro to participate in round-table meetings and in on-site visits in

Palembang to demonstrate the technology, to promote sustainability and to discuss project results

achieved. Farmers, government organisations (a.o. Amdal, DOE), NGOs (a.o. University of

Sriwijaya, GSA) participated.

An inventory of mills of similar intervention was made but yielded no concrete interest, as the

commercial roll-out of such methane capturing projects in the palm oil industry is concluded to be

commercially non-viable. The fact that palm oil mills already use biomass for power and heat

production is in this case contra-productive for promoting the switch to methane gas. Usage of

methane gas instead of the common biomass (fibres and shells) make these last mentioned

feedstock available for sales, but the income is small – even taking into account potential income

from CERs for which the market price is considered too low at the moment. Only CSR driven

arguments or certification driven obligations can provide some support in selling these projects.

Both CSR and certifications are not top of the list or suffer from small budgets by most of the palm

oil producers.

According to LEI, the project complies with the RSPO certification criteria and in principle should be

able to acquire RSPO certification. However, It made no sense to certify the mill without certifying

the fruit-supplying farmers, as certified CPO needs both parties to be certified. As certification

comes with substantial annual cost, the farmers need to be compensated for these costs as well as

they need a premium as financial stimuli to join the certification process. The idea was that from

the premium, paid by Neste Oil to PalmPro, PalmPro could pay the for the certification costs for Mill

and farmers (and pay some premium to these farmers for joining the certification programme).

The agreement with Neste didn’t materialise, so the fact itself that the mill complies with the RSPO

criteria, is not sufficient for making certification viable.

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4. Results of the project

The achieved results of the project are described below:

1. CDM certification

The project partners have applied for HCA for the proposed investment. However, the Project

Design Document (PDD) which was submitted to the Designated Operational Entity (DOE) in

Jakarta was not approved – officially due to insufficient carbon credit potential in relation with the

investment. The project has gained considerable experience in implementing a trajectory for

submission of a PDD. The PDD itself was realised on basis of consensus reached with a group of

stakeholders, which included conceptual input from the FFB suppliers in Palembang. To that end,

the project has yielded firm commitment from the outgrowers in the region.

The project has also resulted in a good insight in the commercial market potential for methane

capturing investment projects. Although alternatives for CDM were found in the form of the VER

regime, the negotiations with German utility RWE in the end were fruitless because of the

perceived low market prices of VER credits. It led to the conclusion that such methane projects are

only commercial viable if there is sufficient cash flow to be earned with the generation and sales of

CO2-credits.

2. Technology implemented

The palm oil factory in Palembang underwent construction activities whereby methane capturing,

scrubbing and mixing equipment was installed for the purpose of co-generation of electricity. The

equipment was designed to process 150 Nm3/hr of biogas from an anaerobic pond with the

following dimensions: 26m x 32m x 5m. The acidification pond covers an area of 30m x 32m x 3m.

The flare equipment includes the following:

Biogas Flare, 6 m height

- Flame enclosure , SS 316

- Carbon steel flare body, heat resistant coating

- Guy wire c/w deadman

- Pilot burner c/w thermocouple

- Gas bottle and regulator

Pipe train

- Butterfly valve

- Actuator valve

- Pressure gauge

- Flame arrester 3"

Control Panel

- Control system with Siemens LOGO

- weatherproof panel

- cable from flare to control panel

Ring Blower

Mist Separator

-SS casing

-Poli propylene demister

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Documents

- manual and installation procedure

- datasheet

Furthermore, Zebra invested in installing additional processing capacity of the mill, which after

expansion reached 18,000 kg of FFB per hour. As a result of the investments made in the palm oil

mill, the mill is expected to make more margin on processing. This allows the mill to pay IDR 100

per kg fruit as premium to the supplying smallholders. 90% of the price premium of IDR 100

ending up at smallholder FFB producer level. This would lead to an extra annual income per

smallholder producer of about IDR 2.7m (EUR 214), which is a substantial increase of 8.4%.

Middlemen also profiting from the price premium (IDR 10 per kg of FFB).

An annual increase in income for all 1,600 smallholders who supply to PalmPro mill and the

middlemen combined, of at least IDR 4.3bn (EUR 342,000). This appears to be a substantial

financial injection into the region in which the PalmPro mill operates.

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3. Sustainability effects assessed and disseminated

The sustainability monitoring framework has been defined by subcontractor LEI. Against this

framework, LEI benchmarked the sustainability aspects of the project together with the Indonesian

University in Sriwijaya (UNSRI). On basis of data gathered, LEI prepared a sustainability impact

assessment report which evaluates the impact of the project against the Cramer Criteria.

Some of the conclusions regarding the sustainability impact of the project are:

1. Methane capture of POME results in an 80% reduction of GHG emissions during CPO extraction,

both for the UNFCCC and the BioGrace tools.

2. The total reduction under the UNFCCC tool is over 9,000 tonnes of CO2 at 100,000 tonnes of

FFB processed. Under the BioGrace tool the reduction is almost 17,000 tonnes of CO2. The

difference is largely explained by a higher GHG emission value for methane and a higher

methane production per MJ CPO produced in the BioGrace tool. If similar parameter values are

used for both tools, they give very similar results of CO2 produced per MJ CPO produced.

3. Utilisation of POME methane may replace over 207 tonnes of diesel annually (at 100,000

tonnes of FFB processed). This may lead to cost-savings of EUR 186,701.

4. Methane capture also leads to a reduction of odour emission, especially H2S.

5. A positive economic return ('economic value retained') because of the investment.

6. As effect of the extended capacity at almost the same operational costs, the mill is expected to

make more margin on processing. This allows the mill to pay IDR 100 per kg fruit as premium

to the supplying smallholders. 90% of the price premium of IDR 100 ending up at smallholder

FFB producer level. This would lead to an extra annual income per smallholder producer of

about IDR 2.7m (EUR 214), which is a substantial increase of 8.4%.

7. Middlemen also profiting from the price premium (IDR 10 per kg of FFB).

8. An annual increase in income for all 1,600 smallholders who supply to PalmPro mill and the

middlemen combined, of at least IDR4.3bn (EUR 342,000). This appears to be a substantial

financial injection into the region in which the PalmPro mill operates.

Digester situation of POME treatment at PalmPro mill

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At different stakeholders meetings and seminars, the project sought support and commitment from

various players in the sector. Various stakeholder meetings with participants from Indonesian

Government Agencies (e.g. Economic Affairs Bureau of South Sumatra Province, Department of

Mines, Energy and Environment Ogan Ilir, Bepelda Ogan Ilir, etc.), Village Government, local NGOs

(e.g Forum for Environment 0 WALHI – South Sumatra, Environment Division of the Legal Aid

Institute LBH, Plembang, Community Leaders, etc), and Media (National Daily KOMPAS, and

Seputar Indonesia, Local Daily’s Sumatera Express, Sriwijaya Post, etc) yielded broad consensus

and support for the project and proposed investments. On a regular basis, the project

communicated (interim) results and progress towards the stakeholders and third parties.

Presentations were held at the Bio-based Economy seminar in Jakarta in March 2011 and in April

2012.

The publication of results and the dissemination of the LEI sustainability report yielded positive

response from various public and private entities, amongst which UNFCCC and private palm oil

companies in Taiwan and Colombia. With the company from Colombia (Daabon, holding company

of Tequendama which until recently has also implemented a POME project under DBM) currently

discussions are ongoing on possible collaboration.

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5. Lessons learned

Specific lessons learned include the following:

1. The project should have included a more realistic time planning for synchronising the PDD with

the EIA and sustainability monitoring framework, whilst more time and costs should have been

allocated to having the PDD comply with the DNA requirements, including translation costs.

2. As NDA has denied HCA based on the (relatively) low amount of CER in relation to the

investment costs, the actual project costs (f.i. as for a project roll-out) and the initial

development costs for this pilot could have been divided into separate budgets.

3. The project finance was partly based on CER income and during the project duration the global

carbon market recessed. Increasing the processing capacity made the project-investment

viable again. These kind of projects may require a plan B for succeeding.

4. Biomass projects have to be financed on base of the energy-value rather than the potential of

CER/VER. Although this is hardly possible in the palm oil industry yet (remote area without

access to grid or gas distribution), it may be viable in the future if the project can concentrate,

clean and compress the combustible gas for cooking purposes.

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6. Follow up of the project

During the realization of this project, the need for scaling up became apparent and so it has been

included. As being advised in the LEI report, a possible follow up on this project is the use of

excess gas which is currently being flared. Ideas of compressing this gas and supplying it as

cooking means to villagers have come up, but need further investigation as trading in energy

products is a governmental monopoly. The roll-out or duplication of this kind of project is troubled

by the recessed carbon market. The carbon trading market no longer offers project financing and

the only remaining drive for entering into methane capture projects are certification requirements

such as from RSPO. Unfortunately many CPO producers are certified conform ISPO (Indonesia) or

ISCC (Malaysia and Indonesia), both lacking the strict requirement regarding methane treatment.

In conclusion, the use of biogas for cooking purpose may be the idea with potential. In line

herewith, biogas, ones compressed, may be used as automotive fuel as well.

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Colophon Date 30 September 2013

Status Final report

Project number DBM01014

Contac person Ag NL Ella Lammers

This study was carried out in the framework of the Global Sustainable Biomass Fund, with financial

support from the Ministry of Foreign Affairs.

Name organisation Zebra Special Products BV

Contact person Mr Cor Verhelst

Address Postbus 154, 4460 AD Goes

Website for more info www.zebra-nl.com